Understand Your Grace Period

The grace period on a student loan is the time between when you leave school and when repayment officially begins. While this break offers a chance to secure employment and settle into post-graduation life, interest often keeps piling up. Unless your loan is subsidized, that accruing interest can significantly increase your balance. This calculator shows exactly how much you’ll owe when repayment starts so there are no surprises.

How Interest Grows

Most student loans use daily or monthly compounding, meaning interest is added to the balance at regular intervals. For simplicity, we assume monthly compounding, which captures how most federal loans function. The basic formula to calculate the balance after $n$ months is:

$$B=P\times {\frac{r}{12}+1}^n$$

Here $P$ is the starting principal, $r$ is the annual rate expressed as a decimal, and $n$ is the number of months in the grace period. The interest that accrues is $B$ minus $P$.

Example Scenario

Suppose you owe $20,000 at 5% interest and have a six-month grace period. Plugging those numbers into the equation yields:

$$\mathrm{Interest}=20000\left(1+\frac{0.05}{12}{}^6\right)-20000$$

The result is roughly $502 in accumulated interest. When you begin repayment, that amount may capitalize—that is, it gets added to your principal and starts accruing its own interest if you don’t pay it right away.

Strategies to Minimize Costs

Consider making small payments during the grace period if possible. Even $25 or $50 a month chips away at the growing balance and prevents capitalization. Some borrowers pick up part-time work or allocate a portion of graduation gift money toward a first payment. Another tactic is saving aggressively so you can pay off the accumulated interest in one lump sum before your first required installment is due.

Subsidized federal loans do not accrue interest during grace, but unsubsidized loans do. Private lenders may have different rules. Always check the terms of your specific loans to see whether interest accrual or capitalization is involved. Use the checkbox above to indicate whether any accrued interest will be added to your balance at the end of the grace period.

Balancing Other Priorities

Recent graduates often juggle moving costs, new-job expenses, and other bills. Paying down interest early might feel daunting. However, ignoring it can increase your total repayment by hundreds or even thousands of dollars. Evaluate your budget to see if there’s room for small grace-period contributions. This practice can shorten repayment by several months, saving you time and money.

Table of Sample Outcomes

Balance	Rate	Months	Interest
$10,000	4%	6	$197
$15,000	5%	6	$377
$25,000	6%	9	$1,122

Setting Yourself Up for Success

Knowing how much interest is accumulating gives you clarity and motivation. By entering your numbers above, you get an instant snapshot of your future balance. Share this page with classmates and friends—it can help them plan ahead too. If you have multiple loans, run the calculation separately for each and total the amounts to see your full picture.

Comparing Lenders

Different lenders offer varying grace period policies and interest rates. Recording the outputs with the copy button lets you create a spreadsheet of scenarios, helping you decide which loan terms are most manageable once repayment begins.

The Impact of Capitalization

Capitalization occurs when unpaid interest is added to your principal balance at the end of the grace period. Once this happens, future interest calculations use the higher balance, creating a compounding effect. The checkbox above lets you model this behavior. If you uncheck it, the calculator assumes the interest is paid before repayment starts, keeping the principal at its original level. For borrowers with multiple unsubsidized loans, paying the accrued interest before capitalization can prevent hundreds of dollars from snowballing.

Another Worked Example

Consider a $30,000 loan with a 6% annual interest rate and a nine-month grace period. Using monthly compounding, the balance at repayment is:

$$B=30000\times {1+\frac{0.06}{12}}^9$$

The accrued interest is $B-30000$, which evaluates to approximately $1,374. If the borrower allows capitalization, the new principal becomes $31,374, meaning every subsequent payment generates slightly more interest. Paying the $1,374 before the grace period ends keeps the principal at $30,000 and can shorten the loan term.

Rate and Time Comparison

Balance	Rate	Grace Months	Interest Accrued
$20,000	5%	6	$502
$20,000	5%	9	$756
$20,000	7%	6	$706

This table illustrates how extending the grace period or facing a higher rate increases the amount due. Borrowers nearing the end of their studies can use such comparisons to anticipate costs and adjust their budgets accordingly.

Limitations and Assumptions

The calculator assumes a fixed interest rate and monthly compounding. Some private loans compound daily, which would yield slightly higher totals. It also ignores fees, deferment options, and potential interest rate changes for variable-rate loans. The tool provides an estimate and should be used alongside official disclosures from your lender. Always read the fine print regarding capitalization rules, especially when consolidating or refinancing.

Related Calculators

Plan the next steps in your repayment journey with the Student Loan Payoff Calculator and explore potential savings with the Student Loan Refinance Calculator.